Tips On Getting Out Of Debt

People once again spent everything they made and then some last year, pushing the personal savings rate to the lowest level since the Great Depression more than seven decades ago. The Commerce Department reported Thursday that the savings rate for all of 2006 was a negative 1 percent, meaning that not only did people spend all the money they earned but they also dipped into savings or increased borrowing to finance purchases.

How Do I Get Out Of Debt?

Radio host and financial guru Dave Ramsey told CBS News that he has four ways that may get people out of debt.

Tabulate Income & Expenses

Ramsey suggests sitting down and listing how much money you bring in each month, and how much you pay out in bills and fixed expenses. Any money left over is your "discretionary" spending money, and it often goes to things such as eating out.

You may not want to divert a portion of this money to your credit card bills, but you'll at least see that the option is there, and the choice is yours. Creating this list should take under an hour, and enables you to take control of your money.

Cut Up Credit Cards

Ramsey advises getting rid of credit cards. Don't buy anything that you can't buy with cash or with a debit card, which takes money directly from your account when you make a purchase.

Consider Selling Stuff

If you're still concerned about your credit card balances, look around your home to see if there are things you can sell, Ramsey advises. Perhaps there's sporting equipment you never use or clothes that still have the tags on them. A more drastic move may be to sell a big item, like your car. If you buy a less expensive car with a lower payment, you'll suddenly find you have a lot more money in your pocket each month, Ramsey says.

Should I Call A Credit Counselor?

If you're not disciplined enough to create a workable budget and stick to it, can't work out a repayment plan with your creditors, or can't keep track of mounting bills, consider contacting a credit counseling organization, the Federal Trade Commission advises.

Many credit counseling organizations are nonprofit and work with you to solve your financial problems. But be aware that, just because an organization says it's "nonprofit," there's no guarantee that its services are free, affordable, or even legitimate. Your financial institution, local consumer protection agency, and friends and family may be good sources of information and referrals.
For more information, see Fiscal Fitness: Choosing a Credit Counselor.

Should I Consolidate My Debt?

According to the Federal Trade Commission, you may be able to lower your cost of credit by consolidating your debt through a second mortgage or a home equity line of credit. Remember that these loans require you to put up your home as collateral. If you can't make the payments — or if your payments are late — you could lose your home.

What's more, the costs of consolidation loans can add up. In addition to interest on the loans, you may have to pay "points," with one point equal to one percent of the amount you borrow. But these loans may provide certain tax advantages that are not available with other kinds of credit, the FTC advises.

Should I Talk To My Bank?

Check the rates of interest on your savings accounts. They can vary bank to bank. HSBC Bank USA, N.A., for example, announced that HSBC Direct Online Savings is offering existing and new customers a 6.00% APY on "New Money," the highest ever offered by an Online Savings Account (OSA) in the U.S.

To Learn More About Saving:

• The Federal Trade Commission has useful tips on how to stay out of debt.
• Click here for resources from the Office Of Public Debt, a division of the U.S. Treasury.